Gold News

Gold Retreats from Record High But "Investment Case Strong" on Rates & Liquidity as Silver Breaks $20/Oz

Gold peaked within 0.4% of June's all-time high for Dollar investors on Wednesday morning, before slipping $7 an ounce from $1262 as the start of Wall Street trading drew near and European stock markets rallied from an earlier drop.

Asian stock markets extended yesterday's 1.1% loss on the MSCI World index, pulling it down by one-third from its peak of autumn 2007.
 
Silver recorded its highest London Fix since March 2008 at $20.02 per ounce, while crude oil held above $74 per barrel.

Gold Bullion this morning hit its third-ever highest London Fix at $1258.

"Until either real interest rates start to rise or liquidity declines, we believe that gold's investment case remains intact," writes Walter de Wet at Standard Bank in his Commodities Focus today.

Measuring global liquidity as the US Federal Reserve's balance-sheet plus global foreign reserves (excluding gold), "Gold's relationship with liquidity is confirmed visually [in de Wet's chart] as well as empirically...up 13% year-to-date as global liquidity is up 10%."

Looking at the US Treasury bond market, "The current yield favors Gold Investment," he adds, and "We expect the Fed to keep interest rates unchanged for most of 2011 and, thereafter, to hike rates slowly."

G7 government bond yields ticked higher but remained below local rates of inflation on Wednesday, with prices slipping back on US, German, Japanese and UK debt.

National Bank of Greece announced a "cash call" on its shareholders late Tuesday, asking for €2.8 billion ($3.5bn) and sparking rumors that Athens may be about to impose a "haircut" on Greek government debt-holders, reducing its obligations.

"While NBG's chief executive Apostolos Tamvakakis doesn't think the Greek government will default, he doesn't say anything about a restructuring," reports the FT's Alpha blog.

"NBG [already] carries its Greek government bond portfolio at a 10% discount in its books."

Greek and French banks heavily exposed to Athens' debt fell hard in early stock-market trade. Over in Lisbon, a new issue of Portuguese government debt saw strong demand for 10-year bonds, but only by offering an annual yield of 5.97% – sharply higher from the 4.17% accepted by bond investors in March.

US president Obama was today scheduled to announce a package of tax cuts and infrastructure spending – heavily trailed in the media this week – likely to cost $180 billion and already opposed by Republican politicians.

"People don't own gold because they want to," writes Peter Boockvar at Barry Ritholtz's Big Picture website today. "They own it because they feel they have to. It's called self defense."

"The Federal Reserve, in my view, hadn't seen [the global financial crisis] coming and in some ways, possibly contributed to it," says Michael Burry, former head of the Scion Capital hedge fund, one of "an extremely small group of really exceptionally adroit" economic forecasters, and a major character in Michael Lewis's current best-seller about the subprime collapse, The Big Short.

"Now Bernanke is the most powerful Fed chairman in history," Bloomberg quotes Burry, who is adding Gold Investment to his farmland and technology holdings.

"I'm not sure that's the right response. The result tends to tell me they're not getting it right."

On the currency markets today, the US Dollar held steady against the Euro, but fell to new 15-year lows vs. the Japanese Yen below €83.30.

The British Pound jumped towards $1.55, driving the Gold Price in Sterling down 1.2% from Tuesday's 10-week high of £822 an ounce.

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Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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